Electricity Authority says prices blame game ‘unacceptable’

Electricity Authority says prices blame game
‘unacceptable’

By Suze Metherell

March 6
(BusinessDesk) – The Electricity Authority will
investigate contradictory pricing claims in the sector,
saying it is “unacceptable” for energy retailers to
blame other parts of the sector for price hikes.

Both
Genesis Energy and Contact Energy have announced price
increases from April to offset increased costs from higher
transmission and distribution fees. However lines and
distribution companies say the new prices exceed the
additional costs imposed on consumers.

In one case,
network provider Wellington Electricity has said it expects
the impact of its price increase on the average customer to
be around 4 percent. Wellington Genesis customers have been
told prices will rise 5.8 percent, while Contact said it
expects a 7 percent price increase in the region. Contact
said network and transmission costs make up 40 percent of a
customer’s bill.

The Electricity Authority said it is
working to improve the quality of retail price information
available, and it would be investigating the contradictory
claims made by the different parts of the electricity
sector.

“It is unacceptable that different parts of the
electricity industry blame each other for price
increases,” EA chief executive Cal Hansen said. “Our
role as an independent regulator is to promote the long-term
interests of electricity consumers, and this starts with
consumers being given the facts about matters of significant
interest to them.”

State-owned Genesis, which is
preparing to be partially privatised next month, expected an
average increase of 3.6 percent nationally, while Contact
expected to pass on an average increase of 2.6 percent
nationwide.

The Electricity Authority’s investigation
comes after it said earlier this year that energy companies
were absorbing nearly twice as much new costs as they were
passing on to customers because of increased competition in
the market. Analysis from the industry regulator said costs
facing a theoretical stand-alone retailer had risen faster
than residential prices since September 2010, when its
pro-competition agenda started to get into full swing.

At
the time, Hansen said that it was a “myth” New
Zealanders had been paying too much for energy prices over
the past 30 years.

During the Contact’s first-half
earnings presentation last month, chief executive Dennis
Barnes said lines companies are stifling power company
innovation.

“One of the biggest inhibitors to that
innovation is how the network companies are structured and
how they structure their tariffs,” Barnes said at a media
briefing in February. “There are 29 network companies with
many thousands of different network tariffs.

“Remember
that network charges about half the bill. We are only about
one-third of the retail electricity bill. If those network
tariffs are not adjusted in the same way, then it’s very
difficult for one-third of the bill to drive a behaviour
change.”

The Electricity Networks Association, which
represents the country’s 29 distribution companies,
refuted Contact’s claims, saying independent analysis by
PwC showed combined generator-retailer portion of a typical
domestic bill was 52 percent and that Contact was
misrepresenting the situation to draw attention away from
its profits.

“It seems a pretty blatant attempt to
obscure a hefty profit lift by Contact when electricity
prices are such a sensitive issue for companies like his,”
said Ken Sutherland the association’s chairman.

In late
February the Commerce Commission ruled that state-owned
national grid provider, Transpower, would be required to
publicly disclose information about its pricing and network
management. Under the new requirements Transpower must also
disclose information about its investment, innovation and
financial performance.

Labour Party energy spokesperson
David Shearer yesterday announced a draft Private Members
Bill which will require companies to clearly separate the
components and costs of a consumer’s bill.

The
Opposition Labour and Green parties want to create a single,
state-owned power buyer and a restructured pricing model, to
eliminate excessive power company profits and pass savings
onto consumers through cheaper electricity
prices.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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